Investors suffering major losses from Hong Kong stock market-tied ELS products stage a demonstration in front of the headquarters of the Financial Supervisory Service (FSS) in Seoul, April 24. Yonhap

As the Hang Seng China Enterprises Index (HSCEI) has recently been showing a bullish recovery, expectations are growing that Korean investors' estimated losses in Hong Kong stock market-tied equity-linked securities (ELS) products might be brought down.

The HSCEI, which tracks the performances of major Chinese stocks listed on the Hong Kong stock market, has been hovering over 6,500 points for three consecutive trading sessions, since the index exceeded 6,500 points for the first time in nine months since last September.

Compared to the start of this year, the index has soared by more than 32 percent, due mainly to the Chinese government's initiative announced earlier this year to prop up shareholder value of Chinese stocks.

Market watchers say if the index continues its upward trend, domestic investors' losses from the HSCEI-tied ELS products may decrease.

According to data compiled by the Financial Supervisory Service (FSS), the total outstanding amount of HSCEI-linked ELS products sold at domestic banks, whose maturity set between April and the end of the year, stands at around 9.9 trillion won ($7.2 billion).

When simply applying the average investment loss rate of 50.1 percent as of March, the total projected loss from the ELS products amounts to 4.95 trillion won.

The banking industry anticipates that the expected losses borne by six Korean banks from their mis-selling of the ELS products might decrease by approximately 1 trillion won if the Hong Kong index maintains its current level above 6,500 points throughout this month, as the loss rate could decrease to 40 percent to 45 percent.

It is also expected that if the index rises above 7,500 points, some portions of the investors may be able to recover their principal investments. Analysts anticipate that most investors might be able to avoid principal losses if the index stays in the range of 7,500 to 9,000 points.

Typically, ELS products are designed to generate profits if the prices of the underlying assets tied to the products' structures surpass 60 percent to 70 percent of their initial value at the time of purchase by the end of the three-year term.

Meanwhile, for those whose losses have already been confirmed due to the arrival of their three-year maturity earlier this year, the FSS is slated to convene a dispute resolution committee next Monday. The forthcoming committee meeting is expected to establish a framework for banks' future compensation, with the compensation ratio for each bank's representative dispute case set during the session.